Simon Fraser University
Engaging the World

Course Outlines

Spring 2023 - ACMA 340 D100

Financial Economics for Actuaries (3)

Class Number: 5815

Delivery Method: In Person

Overview

  • Course Times + Location:

    Jan 4 – Apr 11, 2023: Mon, 10:30 a.m.–12:20 p.m.
    Burnaby

    Jan 4 – Apr 11, 2023: Wed, 10:30–11:20 a.m.
    Burnaby

  • Exam Times + Location:

    Apr 20, 2023
    Thu, 8:30–11:30 a.m.
    Burnaby

  • Prerequisites:

    ACMA 201 (or 210), with a minimum grade of C. Corequisite: STAT 285.

Description

CALENDAR DESCRIPTION:

Option pricing models and their application to insurance and financial risks. Introduction to finance and derivatives. Option strategies and risk management. Binomial models. Black-Scholes-Merton model. Market-making, hedging, and option Greeks. Introduction to exotic options. Mean-variance portfolio theory and asset pricing models. Covers part of the syllabus for Exam 3F of the Casualty Actuarial Society. Quantitative.

COURSE DETAILS:

Outline:
This course is an introduction to financial economics for actuaries. The topics covered include:

  • Introduction to Derivatives: An Overview of Financial Markets, Role of Financial Markets, Use of Derivatives, Buying and Short-Selling, Forward Contracts, Call Options, Put Options, Options as Insurance.
  • Option Trading Strategies: Basic Insurance Strategies, Put-Call Parity, Spreads and Collars, Speculating on Volatility.
  • Forwards and Futures: Alternative Ways to Buy a Stock, Prepaid Forward Contracts on Stocks, Forward Contracts on Stocks, Futures Contracts.
  • Put-Call Parity: Put-Call Parity, Generalized Parity and Exchange Options, Comparing Options.
  • Binomial Option Pricing: One-Period Binomial Tree, Constructing a Binomial Tree, Two-Period Binomial Tree, The General Binomial Tree Model, Pricing Using Real Probabilities, American Options, Options on Dividend-Paying Stocks, Options on Other Assets.
  • The Black-Scholes-Merton Model: Introduction to the Black-Scholes-Merton Formula, Relationship Between Binomial and BSM Models, Applying the Formula to Other Assets, Option Greeks, Option Elasticity.
  • Market-Making and Delta-Hedging: What Do Market-Makers Do, Market-Maker Risk, Delta-Hedging, The Mathematics of Delta-Hedging, The BSM Analysis.
  • Introduction to Exotic Options: Asian Options, Barrier Options, Compound Options, Gap Options, Exchange Options.
  • Mean-Variance Portfolio and Asset Pricing: Mathematics of Portfolios, Diversification, Mean-Variance Theory, Capital Asset Pricing Model, Arbitrage Pricing Theory.
  • Market Efficiency, Behavioural Finance and Project Analysis: Efficient-Market Hypothesis, Behavioural Biases, Cognitive Behavioural Biases, Investment risk Measures, Advantages and Disadvantages of Risk Measures, Risk Analysis.

This course is accredited under the Canadian Institute of Actuaries (CIA) University Accreditation Program (UAP). Details of required courses and grades at Simon Fraser University are available here (https://www.cia-ica.ca/membership/university-accreditation-program-home/accredited-universities/accredited-university-detail?pav_universityid=236ca8c4-60e5-e511-80b9-00155d111030).


In addition to the specific university’s internal policies on conduct, including academic misconduct, candidates pursuing credits for writing professional examinations shall also be subject to the Code of Conduct and Ethics for Candidates in the CIA Education System and the associated Policy on Conduct and Ethics for Candidates in the CIA Education System. For more information, please visit Obtaining UAP Credits (https://www.cia-ica.ca/membership/university-accreditation-program-home/information-for-candidates/obtaining-uap-credits).

Grading

  • In-class Activities and Participation 10%
  • Term Project 10%
  • Midterm 35%
  • Final Exam 45%

NOTES:

Above grading is subject to change.

Materials

REQUIRED READING:

McDonald, R. L. (2012). Derivatives Markets (3rd edition). Pearson.

Berk, J. and DeMarzo, P. (2019). Corporate Finance (5th edition). Pearson.

RECOMMENDED READING:

Hull, J. C. (2015). Options, Futures, and Other Derivatives (9th edition). Pearson.

Shreve, S. E. (2004). Stochastic Calculus for Finance I: Binomial Asset Pricing Model. Springer. Chapter  1

Shreve, S. E. (2004). Stochastic Calculus for Finance II: Continuous-Time Models. Springer. Chapter  7

Cvitanic, J., and Zapatero, F. (2004). Introduction to the Economics and Mathematics of Financial Markets. The MIT Press.

REQUIRED READING NOTES:

Your personalized Course Material list, including digital and physical textbooks, are available through the SFU Bookstore website by simply entering your Computing ID at: shop.sfu.ca/course-materials/my-personalized-course-materials.

Department Undergraduate Notes:

Students with Disabilities:
Students requiring accommodations as a result of disability must contact the Centre for Accessible Learning 778-782-3112 or caladmin@sfu.ca.


Tutor Requests:
Students looking for a tutor should visit https://www.sfu.ca/stat-actsci/all-students/other-resources/tutoring.html. We accept no responsibility for the consequences of any actions taken related to tutors.

Registrar Notes:

ACADEMIC INTEGRITY: YOUR WORK, YOUR SUCCESS

SFU’s Academic Integrity website http://www.sfu.ca/students/academicintegrity.html is filled with information on what is meant by academic dishonesty, where you can find resources to help with your studies and the consequences of cheating. Check out the site for more information and videos that help explain the issues in plain English.

Each student is responsible for his or her conduct as it affects the university community. Academic dishonesty, in whatever form, is ultimately destructive of the values of the university. Furthermore, it is unfair and discouraging to the majority of students who pursue their studies honestly. Scholarly integrity is required of all members of the university. http://www.sfu.ca/policies/gazette/student/s10-01.html